There is an old adage that says being lost is not a great place to start a journey from. How can anyone get to where they want to go, if they don’t know where they are in the first place?
This is the problem that faces many firms and unless they truly understand their business and how it is performing they have no way of knowing how to improve it. Where are changes needed? Which part of the businesses is efficient? What is it that clients like? How effective are the products and services sold?
People always talk about looking to the future and trying to keep one step ahead of the game. Businesses that do not change with the times soon become obsolete and in commercial terms, stagnation is seen as much the same as market suicide.
This may well be true, but it is equally as dangerous to plough forward without looking back to see how straight the tracks are. There is no point in sailing full steam ahead if commercially a firm is going in completely the wrong direction.
This unfortunately seems to be a point that is too often lost on many businesses and particularly in some areas of financial services. Many firms operating in certain sectors are happy to make a single sale, take the profit and walk away.
Their ethos is founded on securing the business in the first instance, rather than servicing it thereafter. This is not a surprising attitude and having sold a product it would be easier for all enterprises if that was the end of the affair. However it is not, and nor should it be.
Responsibilities
From a regulatory point of view, providers and distributors have responsibilities that stretch over the lifetime of the product in question and holding up these obligations ensures clients get what they paid for.
However from a completely selfish point of view, there are also huge amounts of information that firms can glean from examining their back book of business that will help them in the future.
Financial services is all about relationships and referrals. The only way in which a relationship can be developed for future business or mined to produce referrals is by managing it carefully.
Buying on a promise
Insurance in particular is an area of financial services where it is not until the product is called upon that it really comes under any severe client scrutiny. Some clients will be more wary and informed at the point-of-sale than others, but in the main, those making an advised purchase will rely on the knowledge and experience of their broker to point them in the right direction and ensure the cover placed meets their needs.
The bottom line is that consumers are buying a promise from the insurer to pay out on a claim should one be made. They are hedging their bets against something happening at a future date and putting in a line of defence that will protect them from what the future holds.
The payment protection insurance (PPI) market has been under the microscope for a number of years now and many have criticised the value of the promise made by insurers to their clients.
Too often it appears that the insurance sold simply does not provide for those who have bought it, because under the scrutiny of a claim, it transpires that they are not actually eligible for protection.
This was highlighted by the Office of Fair Trading (OFT) in its report into the PPI market last Summer and it stated: “Of those who had their claim rejected, two in five had it rejected because they did not meet the criteria. This indicates that they had either forgotten what the policy covered or had not been informed correctly. Insurers from our business survey indicated that the most common reason for turning down a claim was due to a pre-existing condition – something the consumer should have been made aware of.”
While there is no doubt that consumers will forget where the perimeters of their cover is and may indeed try to make unjustified claims, it is unlikely this will account for all of the 40 per cent of rejected claims.
As such, any firm examining its claims and the reasons for those that are declined should be in an excellent position to understand how many declinations are due to client mistakes and how many are due to poor selling practices.
By understanding every claim and setting a benchmark in regard to the reasons why they fail, it is then possible for firms to alter the processes at the front end and measure future claims results against the standard they have created.
As sales pitches are refined, product exclusions are better detailed, and more information is sought of individual client circumstances, these improvements should feed through into better claims ratios.
Of course, it will never be possible to rule out inadvertent and intentional client mistakes, but it should be possible to get to a situation where consumers are not left without cover because of poor selling practices.
This is the nirvana which the Financial Service Authority is trying to create and which every responsible insurer and broker in the country should be striving after. It is achievable, but only if firms are prepared to measure how effectively they are operating through continual referral to their back book of business.
Making exclusions clear
Exclusions in the PPI market mean that clients have to be between 18 and 65, and be in active employment for at least 16 hours a week. Medically, claims cannot generally be made for things like back problems and stress and so making sure these points are clearly detailed is essential.
However this is not happening as again detailed by the OFT report, which commented: “53 per cent of those paying for PPI monthly did not know what they were paying; 34 per cent thought that there were no exclusions on the policy and 38 per cent did not know whether the policy contained any exclusions. Of the 27 per cent of consumers who said there were exclusions on their policy, only 48 per cent could name these.”
Consumers seem to have little idea of what their insurance actually covers and this must be evident to insurers who are examining the reasons why claims are being turned down. Equally it is disappointing to see that firms are not putting more effort into making sure the policies are better sold in the first place.
Cassidy Davis pays in the region of 80% of its claims and by monitoring its performance on a monthly basis has established an excellent understanding of why claims are failing. In turn the challenge is then to evolve, adjust and improve the sales process to make sure that people who buy the cover are eligible for it.
Although the net is tightening, PPI practitioners have been allowed to get away with more than they should in terms of having rigorous systems and checks in place to ensure the right insurance is sold to the right clients.
However this is gradually changing and the FSA’s ‘Treating Customers Fairly’ rules lay down definite guidelines as to the outcomes those buying PPI can expect. Firms have to be able to identify their clients’ needs and meet them appropriately. They also have to handle claims properly and ensure that policies deliver as specified when needed.
The regulator has stated that by the end of March next year firms are expected to have appropriate management information or measures in place to test whether they are treating their customers fairly. By the end of December 2008 all firms must be able to demonstrate to themselves and to the FSA that they are consistently treating their customers fairly.
The only way that those in the PPI market will be able to meet these challenges, is by having clear and consistent appraisals of their past sales.
Looking forward will always be important, but it will only ever be meaningful if firms can contextualise the view with an understanding of where they have been.
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